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Qualcomm focused on bilateral deals for LTE IPR

As new rounds of IPR negotiations over OFDM/OFDMA technologies loom, Qualcomm is out to persuade critics that its approach to IPR is vastly transparent, not to mention fair, reasonable and nondiscriminatory. But will that forestall future licensing disagreements?

One cannot think of chipmaker Qualcomm without thinking of intellectual-property rights. Although 65% of the company’s corporate revenues stems from sales of chips, 30% comes from royalties for IPR. With so much of its revenue stream based on IPR, it’s no wonder the company is protective of its patents, not to mention its reputation regarding IPR, which has become tarnished by protracted court battles with companies such as Broadcom and Nokia.

Greg Cobb, vice president and assistant general manager of technology licensing at Qualcomm, talked about these issues at last month’s ATIS-3GPP LTE conference in Dallas, addressing IPR related to LTE and other technologies.

At a panel session that featured only Qualcomm – after Nokia bowed out – Cobb reiterated Qualcomm’s longtime refrain that its royalty rates on handsets have not changed since 1990. “Our royalty rates are less than five percent of the wholesale selling price of the handset,” he said, noting that Qualcomm’s rate for a device is set through bilateral agreements with its licensees.

Qualcomm avoids “royalty stacking” by charging the same for a multimode device as it would for a plain single-mode CDMA device, Cobb said. “Even though we continue to add layers and layers of new technology to our patent-license agreements, the royalty rate itself has stayed the same,” he added.

With the focus moving to next-generation devices, many have wondered how Qualcomm will approach OFDM/OFDMA licensing, particularly since it claims to have been the biggest contributor of technology to the development of LTE.

According to Cobb, an LTE multimode device with WCDMA or CDMA2000 functionality will carry the same royalty rate from Qualcomm as a stand-alone CDMA device. Cobb was surprisingly specific in telling conference attendees that for a single-mode LTE device, “the company is giving the guideline that it will be no more than 3.25 percent of the single-mode device’s wholesale price,” depending on bilateral negotiation and reciprocity.

Don’t look for Qualcomm to join any LTE patent-pooling effort. Cobb contends that companies with lots of essential technology do not get full value for their intellectual property if they join patent pools. “We believe the best way to value our patents is through bilateral negotiations,” he said, adding that patent pools are often more attractive to companies that don’t have a lot of technology to license or, for whatever reason, do not want to expend much effort on licensing their technology.

A pool started last spring ostensibly to provide predictable and transparent costs for licensing LTE intellectual property includes as members Alcatel-Lucent, Ericsson, NEC, NextWave Wireless, Nokia, Nokia Siemens Networks and Sony Ericsson. The group’s framework seeks to cap the maximum aggregate royalty level for LTE IPR in handsets as a single-digit percentage of the sales price.

But Cobb contends that capping LTE royalty rates would be misguided and “might kill innovation,” because small companies wouldn’t be able to get a reasonable return on investment for their R&D.

Qualcomm’s not the only vendor shunning the LTE-patent pool. Now-bankrupt Nortel said in May that it would license its essential patents for LTE handsets at a royalty rate of 1% of a device’s sales price, subject to reciprocity and other conditions.

In the discussion in Dallas, Cobb described as false a rumor that Qualcomm intends to base royalty rates for LTE on the entire cost of the device in which LTE is embedded, even if that device is an exotic sports car.

“If we were collecting royalties on [the price] of an entire BMW, first of all, that’s not reasonable to do that, and second of all, I don’t think that drives the marketplace in the direction we want to go: towards lower-cost devices, towards more choices for the consumer,” he said, adding that Qualcomm’s licensing program includes a cap on royalties, designed to stimulate the market.

Regarding IPR for WiMAX, a technology that supporters have long said would have lower royalty rates than LTE, Cobb said that “a lot of articles have been written that it’ll be royalty-free, and I don’t believe that’s the case.” He added: “I don’t believe we truly know or understand at this point in time what the WiMAX IPR business model is going to be.”

LTE has achieved “some transparency,” he said. “I’m not sure there’s been as much transparency yet at this point in time on the WiMAX situation, so it’s hard to tell.”

Of course, though transparency is helpful, Qualcomm and other mobile industry players must have learned by now that mere clarity won’t keep buyers and sellers from arguing and suing over royalties for intellectual property.

As companies assert different models for licensing LTE and WiMAX IPR, it seems clear that even if those models get wrapped in cellophane, the mobile industry faces a future full of patent disputes regarding each of these technologies.

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